Microchip Technology (MCHP) has decided to pause its application for subsidies under the U.S. Chips and Science Act, becoming the first semiconductor company to step back from the program, according to a Bloomberg report.
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The chipmaker had been approved for $162 million in grants to support facilities in Oregon and Colorado. However, the company has been facing challenges, including two rounds of worker furloughs in Oregon and plans to shut down its Arizona factory, which will affect 500 employees.
U.S. Government Responds to the News
The Biden administration’s Chips Act was designed to bolster U.S. chip production, and Microchip’s move represents a setback for these efforts. Responding to the news, a U.S. Commerce Department spokesperson told Bloomberg, “We are in communication with Microchip on their Chips process and continue to have productive conversations with them about their long-term plans.”
MCHP Is Facing Mounting Challenges
Amid these developments, Microchip is facing mounting challenges and has recently slashed its revenue forecast for the December quarter. Additionally, the company anticipates that it will incur restructuring costs between $3 million and $8 million related to the Arizona factory closure, with additional potential costs of up to $15 million in the future. These measures are part of the company’s broader strategy to address higher-than-expected inventory levels and slower-than-expected shipment of orders.
Given the challenging market conditions, MCHP expects its revenues for the December quarter to fall near the lower end of its guidance range of $1.025 billion to $1.095 billion. Furthermore, the company expects any cost savings from the shutdown of its Arizona factory to be realized only in Fiscal 2026, due to the surplus inventory tied to the facility.
Is MCHP Stock a Good Buy?
Analysts remain cautiously optimistic about MCHP stock, with a Moderate Buy consensus rating based on 11 Buys and four Holds. Over the past year, MCHP has declined by more than 20%, and the average MCHP price target of $86.08 implies an upside potential of 33.5% from current levels.
